Category: Serbia

On 3 March 2022, Serbian banks received a letter from the National Bank of Serbia stating that Serbia did not implement sanctions against the Russian Federation and that the banks must continue to provide services to their clients who are in any way connected to the Russian Federation. The banks were told to do so without delay, in any case not later than 4 March 2022, and to report back on undertaken actions.

National Bank of Serbia is not wrong – on this day, Serbia did not sanction the Russian Federation, and it would not be legal for Serbian banks to cease providing services to clients who are in any way connected to the Russian Federation. However, this predicament has put the members of management and executive boards of Serbian banks, most of whom are citizens of the European Union („EU“) member states, between the laws of their state and the laws of Serbia that apply to them due to their position in the Serbian bank („EU Board Members“).

On the one hand, EU Board Members are subject to adherence to EU member state sanctions, wherever located. This includes directors or officers of non-EU incorporated or domiciled entities if they hold an EU passport. Failing to comply with the provisions on sanctions, an EU Board Member may be subject to prosecution in the EU member state they are a citizen of. The potential liability of the EU Board Member depends on the laws of the member state.

On the other hand, failing to comply with Serbian laws and the National Bank of Serbia’s letter may result in in-house supervision of the National Bank of Serbia, and one or more preventive and corrective measures and monetary fines that may be issued by the National Bank of Serbia under the Serbian Act on Banks (including the forced removal of a specific EU Board Member).

This conflict of laws creates a pincer movement around the EU Board Members and the domestic banks. Effectively, EU Board Members have an option to incriminate themselves in the EU member state they are a citizen of in order to comply with Serbian laws or to risk regulatory consequences from the National Bank of Serbia. Several practical remedies are considered at this point; however, it seems that this issue will require a systematic solution from the National Bank of Serbia that would ensure less uncertainty, especially when dealing with systematically important financial stakeholders on the Serbian market. 

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Milan Samardzic, Partner, and Milan Novakov, Senior Associate, Samardzic, Oreski & Grbovic

In light of the upcoming parliamentary and presidential elections and a relatively inactive legislative phase, Serbia’s potential free trade agreement with China is one of the major economic topics in the country, according to Bojovic Draskovic Popovic & Partners Partner Vuk Draskovic.

“We are now in the pre-election period, as both parliamentary and presidential elections are scheduled for April 3, 2022,” Draskovic begins. “For this reason, in terms of the political and legal environment, the atmosphere in Serbia is quite specific. Currently, the legislator is not very active and this will most likely be the case until the end of the elections and the forming of a new government. After April, significant amendments might be introduced but they are unlikely to be implemented in the first half of the year due to this circumstance,” he explains.

Draskovic says that, save for the latest political and economic turbulences related to the Ukrainian crisis, the most prominent issue in Serbia is the free trade agreement with China. “A big announcement was made recently on this topic,” he notes, pointing out that “Serbia has a relatively strong economic and political relationship with China. The trade agreement, if finalized by the end of this year, will be the first in Eastern Europe.” In addition, he says, “there is already a growing trend of Chinese investments in the country.”

Despite the inactive period, Draskovic points out that there were some relatively modest legislative updates. “As an example, Serbian corporate law has recently been slightly amended in terms of issues related to fictitious addresses of the registered seats of companies and additional protection of small shareholders in joint-stock companies,” he reports. “Overall, Serbia is in the process of harmonization of its legislation with EU law. The major changes introduced by legislative bodies in the last decade were related to this harmonization.” According to Draskovic, the vast majority of Serbian laws are already in line with EU legislation. “For instance, the GDPR is not applicable to Serbia, yet we have already adopted legislation which is basically a translation of its provisions,” he says.

Draskovic notes the legal market has been quite active, while the economy saw stable growth in the previous year. “This is especially true with regards to the real estate and M&A markets,” he says. “In terms of the M&A market, as in previous years, IT-related M&A transactions remain the most frequent. The IT sector is very active in general and is increasingly becoming a significant part of the Serbian economy.”

“We are still waiting for official figures about the growth of Serbian GDP but it is very likely that, compared to the previous year, we have above 7% growth – one of the highest numbers in Europe,” Draskovic points out. “State investments and infrastructure projects, on the one hand, are among the factors that have contributed to Serbia’s increased GDP, while the increasing public debt is on the opposite side of this trend,” he concludes.

Ukrainian conflict has severe and far-reaching consequence on peoples lives.

In addition to the obvious political and economic consequences of the Ukrainian war crisis, there is a less obvious question of the sustainability of business relations.The contracting parties who could not have foreseen this development, can now easily find themselves in a situation where, due to objective, external obstacles, cannot fulfill their contractual obligations.

This raises the important question of whether the Ukrainian crisis can be considered a „force majeure“ and to what extent it affects the fulfillment of contractual obligations.

FORCE MAJEURE AND THE VIENNA CONVENTION

The United Nations convention on the Contracts for the International Sale of Goods, which is better known as Vienna Sales Convention (“Convention”) is one of the success stories of the commercial law unification that took place within the framework of the United Nations Commission on International Trade Law, as it has been ratified since its entry into force on 1st January 1988 by nearly 100 countries, including the majority of the developed countries.

The rules of the Vienna Convention automatically apply to all agreements on the international sale of goods if it is not excluded by the agreement itself.

It is important to highlight that the Convention does not use the term of “force majeure” at all, because its aim was to establish an international source of law, which is independent of national laws and in order to avoid being interpreted by the courts of different countries based on their domestic law. Therefore, The Convention uses the neutral expression “impediment” which exempts the contracting party from the liability for breaching the sales contract if the following 3 (three) conditions are met (Article 79 of the Vienna Convention):

1. the failure was due to an impediment beyond his control;
2. he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract and;
3. he could not reasonably be expected to have avoided or overcome it or its consequences.

It is important to say, that the party affected by the impediment is not entirely exempted from its liability. This means that the party affected is not liable for the non-performance until the impediment ceases to exist. The existence of the impediment should be proved by the affected party, who carries the burden of proof.

This is an exemption from the basic principle thar says “contracts should be executed”, called “lat. pacta sunt servanda” which means that the existence of the impediment shall be interpreted restrictive.

1. Cause of impediment needs to be beyond the control of the contracting party

In general, quite broad interpretation of definition “what can be in parties’ control” is applied. Accordingly, the so-called “acquisition risk” is always within the control of the Seller, therefore he generally cannot rely on the delay or non-performance of his supplier.

On the other hand, the risk of payment is a risk that can be controlled by the buyer almost at any time, meaning that he cannot be released of its obligations if, for example, the bank refuses to make the transfer of money even do the party gave the payment order. This may affect Russian parties which banks are now excluded from swift arrangement. 

2. Foreseeability of the “impediment”

The courts apply the provisions of the Convention depending on whether or not the impediment could have been foreseen at the time the contract was concluded.

3. Inevitable nature of “impediment”

Courts tend to set the bar very high for this condition.

German Iusrisprudence

In a litigation in front of a German court, the French seller argued that he delivered lesser tomato concentrate than the agreed quantity, because there was a radical price increase of the product, due to market shortage, emerging because of heavy rains in France. The court dismissed this argument on the basis that the severe weather conditions had not destroyed the entire tomato crop, so the seller could have overcome the impediment. 

CONCLUSION – Ukrainian crisis as a “impediment”

Our opinion is that each case must be analyzed separately and that there is no single solution potentially applicable.

On the other hand, it is obvious that the Ukraine crisis (over large parts of its territory affected with combat operations) can be classified as impediment that may release the party from its contractual liability, effective as long as the impediment lasts… all in accordance with Article 79 of the Vienna Convention, given that the invasion has been unexpected, and as such resulted with casualties, destruction of equipment and facilities, restrictions on freedom of movement and closure of borders.

By Nenad Cvjeticanin, Cvjeticanin & Partners

The Croatian data protection authority has recently passed a decision establishing the violation of the right to personal data protection in terms of the articles 5, 6 and 14 of the General Data Protection Regulation of EU 2016/679 (“GDPR”), due to a phone call made to the number listed in “Do-not-call” registry.

Facts and Holding

The respective decision established that a company has unlawfully processed personal data, by calling the phone number of a natural person listed in “Do-not-call” registry, with the request to partake in a survey, hence in this manner the natural person concerned had clearly denied its consent to processing the subject personal data.

The above said company is therefore prohibited from further processing of the respective user’s personal data, and it is ordered to delete the subject phone number from its internal database.

Namely, Article 6 of the GDPR stipulates that processing shall be lawful only if and to the extent that – inter alia – it is necessary for the purposes of the legitimate interests pursued by the controller or by a third party, except where such interests are overridden by the interests or fundamental rights and freedoms of the data subject which require protection of personal data (in particular where the data subject is a child). In addition, the GDPR prescribes that the controller is liable to undertake appropriate organizational and technical measures to ensure that requirements set out by Article 5 of the respective regulation are met. Also, in this particular case the controller has also violated provisions of Article 14 of the GDPR, as it did not provide sufficient information to the data subject with respect to the subject processing.

“Do-not-call” registry under the Serbian Consumer Protection Law

As elaborated in one of our previous articles, “Do-not-call” registry is introduced to the legal system of the Republic of Serbia by the new Consumer Protection Law, which entered into force in the end of the previous year, and which stipulates that it is prohibited to make calls and/or messages by telephone to consumers whose telephone numbers are listed with the register of consumers who do not want to receive calls and/or messages within the promotion and/or sale by telephone.

The registry concerned shall be maintained by the regulatory body responsible for electronic communications (RATEL), whereby the registration therein shall be undertaken at the request of the consumer and free of charge, by an electronic communications operator with whom the consumer has an agreement concluded.

First step towards establishing of this registry is passing of the by-law by the Ministry of trade, tourism and telecommunications, within one year from entry into force of the new law, which shall regulate manner of registration and deregistration from the respective registry, conditions and manner of use and maintenance of the registry, as well as the form of the application for registration and deregistration from the registry.

Given that the afore-mentioned by-law is still not passed, i.e., as the registry concerned, at this moment, is not established, it remains to be seen what the practice of local authorities will be in this regard.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Lara Maksimovic, Senior Associate, PR Legal

Prica & Partners has advised DM Drogerie Markt Srbija on the “Uvek Povoljno” marketing campaign in Serbia.

DM-Drogerie Markt is a chain of retail stores founded in 1973 and headquartered in Karlsruhe, Germany, offering cosmetics, healthcare items, household products, and health food and drinks.

Prica & Partners’ team included Partners Darija Ognjenovic and Tijana Lalic and Senior Associate Jelena Zivanovic.

JPM Jankovic Popovic Mitic has advised CD Holding Internationale on its acquisition of the remaining stake in Serbia’s Emergo Sport from FitPass Limited in Ireland. Bojovic Draskovic Popovic & Partners advised the seller.

Emergo Sport, the former Serbian subsidiary of Fitpass Limited, is a company specializing in the issuance, sale, and operation of a multi-gym and sports activities membership card offering access to sports facilities in Serbia for corporate entities and retail individuals.

Established in 1964, CD Holding Internationale is a French cooperative group connecting individuals, companies, and territories by developing management, relationships, and transaction platforms that contribute to well-being and performance. The group operates in more than 25 countries worldwide.

According to JPM, the third phase of the transaction finalized the acquisition of a 100% stake in FitPass Serbia. Both JPM and BD2P have also advised on the prior two stages of the acquisition process: the initial partnership in 2019 (as reported by CEE Legal Matters on August 16, 2019) and the acquisition of an additional stake in 2020 (as reported by CEE Legal Matters on August 7, 2020).

The JPM team was led by Partner Nikola Poznanovic.

The BD2P team was led by Partner Vuk Draskovic and Senior Associate Milica Pesteric.

The COVID-19 pandemic caused many changes in doing business and, therefore, also had a significant impact on regulating the mutual rights, obligations, and responsibilities deriving from employment.

Due to the insufficiently precise provisions of the Labor Law regarding work outside the business premises of the employer, as well as lacking practice, employers in Serbia were caught off guard and forced to adjust the working process to the quarantine rules, the restrictions in movement, the lack of means for preventing the spread of infectious disease, etc.

Luckily, as time passed by, it became clearer what the options of organizing work outside the business premises of the employer are. Pursuant to the provisions of the Labor Law, employer and employee may agree for the work to be conducted outside the business premises of the employer, i.e., from home.

In order to prevent the spread of COVID-19, many employers intend to limit access to the business premises for those employees who are either not vaccinated or do not have a negative test for the virus. However, Serbian legislation does not stipulate the right of the employer to process the personal information of the employees and, therefore, to prohibit their access to their place of work.

That said, it is undisputed that in order for the work outside the business premises of the employer, i.e., work from home to be introduced, there has to be a consent of the employee.

When executing an employment agreement for the work outside the business premises of the employer, i.e., work from home, or when executing an annex to the employment agreement for such purposes, the Labor Law stipulates mandatory elements for such employment agreements or annexes to the employment agreement. Namely, the parties must regulate working hours, the manner of conducting supervision of the employee’s work, the means of work that will be provided to the employee (that the employer is required to install and maintain), compensation for expenses for the usage of those means of work, and compensation of other expenses.

The compensation of expenses for work from home became the main issue when executing the employment agreement, i.e., the annex to the employment agreement for work outside the business premises of the employer. It is considered that this compensation should cover the expenses of electricity, internet connection, and other expenses that employees might incur due to organizing work from home. However, since it would be quite complex to determine the exact amount of these expenses – which part represents the private expense of the employee and which part represents work-related expenses – this compensation is usually determined as a flat amount, paid per day or per month, depending on the period for which work outside the business premises of the employer is agreed.

Since employees are not entitled to the compensation of expenses for commuting to and from work for those days of work that are spent at home (working remotely), employers usually redistribute this expense to cover the expense for work from home.

It is important to stress that employees who are working remotely are entitled to the same basic salary as the employees who conduct work at the business premises of the employer. In addition, work outside the business premises of the employer, i.e., work from home must be regulated in a manner that allows the employee to use rest periods during work, daily rest, and weekly rest periods in line with the law.

Although working from home has many benefits for both employers and employees (it allows for a higher level of flexibility, it is more cost-effective, etc.), it also has its downsides. Employees usually communicate only via e-mail, making them feel more isolated, which may affect the relationships between co-workers and team morale. In addition, remote work can make it quite difficult for the employer to monitor the performance of the employees.

Consequently, many employers tend to combine the two, i.e., enable employees to split their working time between work from home and work from business premises of the employer, as the most productive solution.

Regardless of whether employees will work full working hours remotely or only a certain part of those, the employer is still required to amend its general acts, as well as employment agreements, in order to stipulate the mutual rights, obligations, and responsibilities of the parties when the work is conducted outside the business premises of the employer.

By Jelena Nikolic, Partner, JPM Jankovic Popovic Mitic

This Article was originally published in Issue 8.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Bearing in mind the increasingly frequent engagement of foreign legal entities on various projects in Serbia, as well as the fact that during the last year the practice of direct investments by non-residents in Serbia significantly expanded, it is only natural that each transaction in which a legal entity acquires a certain income, raises numerous questions, such as: do non-residents pay income tax in Serbia, in which cases are they obliged to do so, how high is the tax rate, is there an international agreement on avoiding double taxation?

When it comes to regulations that stipulate the rights and obligations of foreign legal entities based on the realized income from business in Serbia, the domestic legislator regulated this matter by the Law on Corporate Income Tax (“the Law”).

The Law stipulates that a foreign legal entity, i.e. a non-resident, is subject to taxation of profits generated on the territory of Serbia, but only those profits generated by operating through a permanent business unit located on the territory of Serbia, and only if an international agreement on avoidance of double taxation does not prescribe otherwise.

What does the term permanent business unit refer to?

In terms of the Law, a permanent business unit means any permanent place of business through which a non-resident conducts its business, in particular:

1. Branch;
2. Plant;
3. Representative office;
4. Place of production, factory or workshop;
5. Mine, quarry or other site of exploitation of natural resources.

Also, bearing in mind that foreign legal entities have been frequently engaged to conduct the construction works on the territory of Serbia, it is very important to point out that a permanent business unit may also refer to a permanent or movable site, construction and mounting works, if they last more than six months, including:

1. a) One or several construction or mounting projects executed concurrently, or
2. b) Several construction or mounting projects executed one after the other without interruption.

Tax Rate

The withholding tax rate is 20%, unless otherwise prescribed by an international agreement on the avoidance of double taxation.

Types of income to be taxed and how the tax is paid

The withholding income tax is paid on income generated by a non-resident legal entity from a resident legal entity on the basis of:

1. Dividends and profit share in a legal entity;
2. Compensation from copyrights and related rights and industrial property rights;
3. Interest;
4. Compensation from lease and sublease of real estate and movables on the territory of the Serbia;
5. Fees from market research services, accounting and auditing services and other services in the field of legal and business consulting, regardless of the place of their provision or use, or the place where they will be provided or used.

On the other side, if a non-resident legal entity realizes capital gain, i.e. any other income for the purpose of settling its claim, it is obliged to hire a tax representative who will, within 30 days from the day of income realization, submit a tax return to the competent tax authority, and this tax will be payable upon receiving the relevant tax decision. Therefore, as far as filing a tax return is concerned, unlike residents who can file a return themselves or through a tax representative, foreign legal entities in Serbia must have their own tax representative who will file a tax return.

International agreements on avoidance of double taxation

International agreements on the avoidance of double taxation that Serbia has concluded with other countries have the priority in defining and determining which tax is paid in a specific case of a legal transaction, when the participants in the legal transaction are residents of the contracting states.

When calculating the withholding tax on the income of a non-resident, the payer of income shall apply the provisions of the agreement on the avoidance of double taxation, on condition that the non-resident concerned can prove its status of a resident of the state with which the Serbia has concluded an agreement on the avoidance of double taxation and that the non-resident is the actual owner of income.

International agreements mostly provide certain benefits for the contracting states, such as a lower tax rate, exemption from taxation for a resident of a contracting state on the territory of another contracting state with income tax, so that a non-resident in Serbia, consequently, does not pay tax on certain income.

By Milinko Mijatovic, Senior Counsel, and Jelena Jankovic, Senior Associate, Milosevic Law Firm

At the end of 2021, there was a public debate on the Draft Law on Internship, proposed by the Ministry of Labour, Employment, Veteran and Social Affairs (“the Draft”), while the final proposal is pending.

What does internship imply?

The Draft regulates the issue of time-limited work engagement organized by employer, that enables an intern to obtain practical experience, specific knowledge and skills within an occupation, as well as the manner of obtaining such experience, knowledge and skills through internship, and rights, obligations and responsibilities of both employers and interns.

In accordance with the above, the Draft defines internship as activities of intern aimed at obtaining practical experience, specific knowledge and relevant skills for working within a particular occupation, for the purpose of improving employability and/or creating possibilities for employment and self-employment, whereas the Draft also stipulates what is not considered as internship (e.g. apprenticeship, volunteering etc.).

Internship agreement

The Draft sets out that internship may only be established on the basis of previously concluded written internship agreement between the intern and the employer. The respective agreement does not establish the employment relation, it can be concluded only once with the same person, and it is concluded for a period necessary to achieve the goals of internship that may not exceed six months.

Upon completed internship, the employer shall enact to every intern an internship certificate, whose form and content are also specified by the Draft.

Intern and employer

By virtue of the Draft, an intern shall mean any natural person up to 30 years of age, who works as intern with an employer for the purpose of obtaining practical experience, specific knowledge and relevant skills for work within a specific occupation.

Therefore, internship may also be done by an unemployed person, whether registered in unemployment records or not, provided that such person has minimum 15 years of age and completed elementary school, yet does not possess working experience in the occupation that the internship is performed within. In other words, a minor may also be an intern given that the additional requirements specified by the Draft are met.

On the other hand, the Draft defines employer as a legal person, entrepreneur and representative office or branch of a foreign legal person (registered in the territory of the Republic of Serbia) where internship is performed and which provides the conditions necessary for provision of practical experience, specific knowledge and relevant skills through internship, whereby the Draft further specifies the number of interns that an employer may engage, which depends on the number of its employees.

The Republic of Serbia, autonomous province, local self-government units and public services may also act as employers in terms of the Draft.

Employer’s obligations

The employer organizing internship shall be obliged, inter alia, to:

• publish an announcement for internship;
• provide the intern with tasks and means for work;
• respect and protect the intern’s dignity;
• ensure safe and healthy working environment;
• file an application for mandatory social insurance within a prescribed period, no later than the commencement of internship;
• pay compensation; and
• pay contributions for pension, disability and health insurance in accordance with the law.

Intern’s rights

For the purpose of protecting intern’s rights and interests, the Draft stipulates that an intern may not work more than 40 hours a week, while internship can imply full-time or part-time engagement. In relation thereto, overtime work and redistribution of working hours shall are not allowed, and the intern may not work on holidays that are non-working days under the law.

One of the specifics of this working engagement is the compensation that intern is entitled to during the internship, which amounts to at least 2/3 of the minimum salary increased by the tax and contributions that the employer is obliged to pay.

Protection of rights

An intern who deems that his/her rights from the internship agreement have been violated by the employer may, within 15 days after the delivery of decision that violates the right or after learning about the violation, request from the employer the exercising of such right. If the employer fails to fulfil such request within the same deadline (after the delivery of intern’s request thereof), the intern may within an additional 15-day period request the protection of the violated right before a competent court.

Criticism of the Draft

Although the Draft contains the provisions stipulating rights and obligations of employers and interns, as well as court protection in relation thereto, during the public debate on the Draft it was reiterated that these provisions were not sufficiently detailed and comprehensive, which leaves space for different abuses. Criticism was focused on the definition of intern (since it only covers the persons educated for a certain profile, which leaves out the persons who wish to acquire relevant qualifications for other occupation), as well as provisions stipulating that compensation for internship is less than the minimum salary etc.

Therefore, it remains to be seen whether the mentioned and other deficiencies of the Draft will be eliminated by the final proposal of this piece of regulation.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Lara Maksimovic, Senior Associate, and Andrea Arsic, Associate, PR Legal

Karanovic & Partners has announced the appointment of Senior Partner Darko Jovanovic as the new Managing Partner of the firm.

Jovanovic takes the position over from Senior Partner Dragan Karanovic – who has been serving as the Managing Partner since 2020 when he took over from Rastko Petakovic (as reported by CEE Legal Matters on February 5, 2020) – after acting as deputy Managing Partner for the past two years.

According to Karanovic & Partners, Jovanovic, who has been with the firm for 18 years, “is specialized in infrastructure and energy financing, construction projects, and the development of PPPs.”

“Darko regularly handles complex matters for major borrowers, investment funds, and international financial institutions, covering all aspects of banking and finance, but internally he is also known for his excellent organizational skills and dedication to client care,” commented Senior Partner Dragan Karanovic.

“I’m honored to be elected as Managing Partner and to continue with the successful leadership path Dragan has set,” added Jovanovic. “Previous years were as challenging as they were successful, and with a great team and clients, I’m sure that we can look forward to the future ones.”

According to the firm, Jovanovic will be assisted and supported by Senior Partner Milos Vuckovic while performing Managing Partner duties.